Profits, risk and uncertainty in foreign exchange markets
Profits, risk and uncertainty in foreign exchange markets
This paper examines the properties of nominal profits from speculation in dollar-dominated forward contracts using a representative agent cash-in-advance model, modified to allow for heteroscedasticity in the exogenous processes. The model is simulated by estimating exogenous processes from the data and the remaining free parameters with a simulated method-of-moments technique. Simulated expected profits are variable, heteroskedastic, and serially correlated, but the magnitude of these second moments fall short of those of the predictable component of observed profits on the U.S. dollar. As in the actual data simulated forward rates display biasedness in predicting simulated future spot rates.
259-286
Canova, Fabio
d700bd9a-5f63-4782-9eda-64c5b8fe2dc5
Marrinan, Jane
f0d18ef0-4c27-46d4-80e6-54a967105860
November 1993
Canova, Fabio
d700bd9a-5f63-4782-9eda-64c5b8fe2dc5
Marrinan, Jane
f0d18ef0-4c27-46d4-80e6-54a967105860
Canova, Fabio and Marrinan, Jane
(1993)
Profits, risk and uncertainty in foreign exchange markets.
Journal of Monetary Economics, 32 (2), .
(doi:10.1016/0304-3932(93)90005-Z).
Abstract
This paper examines the properties of nominal profits from speculation in dollar-dominated forward contracts using a representative agent cash-in-advance model, modified to allow for heteroscedasticity in the exogenous processes. The model is simulated by estimating exogenous processes from the data and the remaining free parameters with a simulated method-of-moments technique. Simulated expected profits are variable, heteroskedastic, and serially correlated, but the magnitude of these second moments fall short of those of the predictable component of observed profits on the U.S. dollar. As in the actual data simulated forward rates display biasedness in predicting simulated future spot rates.
This record has no associated files available for download.
More information
Published date: November 1993
Identifiers
Local EPrints ID: 32939
URI: http://eprints.soton.ac.uk/id/eprint/32939
ISSN: 0304-3932
PURE UUID: 465b0f25-36d6-415e-b6a9-7c60164c7abe
Catalogue record
Date deposited: 11 Dec 2007
Last modified: 15 Mar 2024 07:40
Export record
Altmetrics
Contributors
Author:
Fabio Canova
Author:
Jane Marrinan
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics